Seasonality is a real thing in the investment arena. Some annual market moves actually relate to the seasons, like natural gas prices rising in the heat of summer and freeze of winter as air conditioner and heater demand ramps up.
Other seasonal moves have nothing to do with the weather – but are just as reliable.
The one I want to point out: outsize gains over the next three months.
The chart below shows the Toronto Venture Index from mid-December to mid-March each year since the winter of 2001-2002.
Almost every line boasts a positive slope. Even more significant: most of these three-month gains represent a significant out-performance of the index over the rest of the year.
Of the 13 years covered:
- The period between mid-December and mid-March has outperformed the rest of the year 12 times.
- The Venture Index has only lost ground twice in those 13 years, compared to six January-to-December losses
- Twice the Venture Index achieved multiples of its annual gain in the December-to-March period.
- Four times the Venture Index gained December-to-March before going on to end the year down.
- Three times the period from December to March provided
…
There is so much analysis out there that, the more one researches, the more confusing it can become. And just when you’ve got one aspect sorted – like the fact that gold bottomed on Nov. 5th – another seismic shift, like a tanking oil price, throws everything else around.
That’s why it’s good to get away from my computer and my usual group of gurus and get a wider swath of opinion. And a swath of opinions is definitely what you get when you linger near the bar at a mining sector Christmas party.
The US recovery is real, the dollar is climbing, and that will hurt gold. No – the recovery is shaky and the end of the shale boom will derail it, hurting the dollar and helping gold. (I think both arguments miss more important pro-gold points about currency uncertainty, limited physical supply, and central bank buying, but everyone is entitled to an opinion.)
Copper is cheap and deficits are looming. What? Copper is overvalued and Chinese demand is sliding, so supplies are more than sufficient!
Uranium had its rally – stockpiles will keep it trading sideways for the next year. Pardon? Uranium is just getting
…
In my last missive I made the long-term gold argument. That’s great – but it’s easy to make claims without timelines.
Sure, at some point in the future the US dollar will no longer dominate global trade. At some point it will be supplanted by a yuan backed by stacks of Chinese gold. As for when – I don’t know.
It will take many years. Paradigm shifts do not happen overnight. Comfortable in their established structures, society fights against dramatic change even when change is needed.
That fight will push the process one step back for every two steps forward, and occasionally the other way around. Every time the dollar resists its demise gold will give up some of its gains.
But overall gold will rise. The dollar owes its recent strength to being the best of a bad lot. As currency dynamics shift – as the renminbi gains acceptance, as gold regains strength, as the petrodollar system dissipates – the dollar will face increasing competition as a safe haven investment and an international trade facilitator.
But I am getting lost in the long term again. What I really want to discuss is what is happening with gold right
…
As a newcomer to this newsletter business, I face a conundrum.
I believe in gold. I see gold adding several hundred dollars over 2015. In the longer term I believe the yellow metal will go significantly higher, propelled by its unique role as an intrinsic store of value and increasing constraints on its production.
I could talk about gold almost every day…but that would make me a gold bug. And gold bugs can be hard to bear.
It’s hard to listen to anyone tell the same story or make the same argument over and over.
Most gold bugs fit that bill. They cemented their storylines during gold’s bull run, each added dollar creating the confidence to take their tales one step farther. By the time gold peaked in 2011 amidst massive quantitative easing, the bugs were convinced gold’s run to the rafters was unstoppable.
They were wrong, of course. Gold has since lost almost 40%. Now, with consensus growing that we are at the bottom (led by yours truly) or at least very near to it, the gold bug battle cry is again growing loud.
The most vehement cries are easier to dismiss, coming as
…
The emails started as soon as the Venture exchange dropped below 747 points on Friday.
“Hate to say I told you so, but…!”
“Three weeks – was that the rally you kept talking about?”
“Sorry to see your first big call turn sour so soon…”
You see, I had called Nov. 5th as the bottom for the mining sector. On that day gold, the Venture, the Euro, the gold miners’ index, the junior gold miners ETF, and silver all hit multi-year lows. Some fell to those lows with a ferocity not seen since the financial crisis.
And it happened in the context of a sector ready for a rebound. Mining is cyclical because metals are necessities of life. Demand tracks population and growth upwards. Investment follows. In time, production rises above requirement and then everything has to calm down again. Speculation amplifies each movement.
It’s the nature of the sector, but the sector has been in a downward trend for four years. That’s the kind of correction that kills exploration, strangles development, and squeezes production to the point where there is not enough gold or zinc or silver to meet demand.
At the moment, that is
…
Burkina Faso’s ousting of its 27-year dictator, endless labour strife in South Africa’s mines, power outages and mining code revisions in the Democratic Republic of Congo, tax increases in Zambia, Ebola in Guinea, Sierra Leone and Liberia – enough uncertainties arise in Africa in any given month to make the continent seem the riskiest place in the world to mine.
But risk comes in many forms and sneaks into places that seem very stable.
Say a junior explorer with a nice copper-gold porphyry piques your interest. What do you do before investing? You investigate the management team, assess the geology, pick through the financials and share structure – and contemplate risk.
Where is the project? What hurdles might trip up progress? Is there social opposition, a slow permitting regime, an uncertain tax structure, or a debate over water rights? Is the government reliable and is there any risk of expropriation?
We tend to assume risk is inversely proportional to national development: highly developed countries like Canada or the United States should portend less risk than developing nations like Ecuador or Burkina Faso.
But this is not necessarily so.
Ecuador is a good example. Now known to host
…
When I called the bottom as having happened Nov. 5th, I got lots of feedback.
I was called gutsy, bold, overly optimistic,
naïve, and ballsy (my personal favorite), among other adjectives.
Many wrote to me outlining all the deflationary
pressures that will supposedly strengthen the greenback, stifle economic
growth, and hold gold down.
I disagree.
I know I’m the new kid on the block. I am not
an economist and I’ve been in the business less than ten years – but these days
I am finding those deficiencies are my advantage.
Because I don’t have a point to prove. I’m not
a gold bug or a mining bear or a currency warrior or a debt deflator. I’m a
scientist and a journalist, so I research and then reason.
Let’s just think about gold. Where gold goes,
the mining sector generally follows. There are independent forces at work on
copper and zinc and silver and iron ore and so on, but a
…
The word ‘decouple’ is once again making the rounds. I like it – but my decoupling isn’t the same as most.
Last time ‘decouple’ was popular was in 2009. It was applied to emerging markets, which investors hoped could keep running despite the global financial crisis.
This time around people are hoping the US can ‘decouple’ from the rest of the world, continuing its economic recovery despite a recession in Japan, a stagnant Eurozone, and a slowing China.
Sure. Whatever.
I say that because the market I care about – mining – was completely excluded from the big ol’ bull run of the last few years that lifted the S&P 500 by more than 200%, the Dow by almost 170%, the Toronto big board by 100%.
Whether those runs can continue is a topic of endless debate.
Believers point to improving jobs, construction, and economic growth numbers in the United States to argue America truly is recovering. If so the rally was justified and can continue – provided the US can decouple from the stuttering economies of Europe and Japan.
Non-believers point to the
…
The Federal Reserve was not in an easy position. Anticipation of a rate raise by June, if not by April, had built to a frenzy leading up to today’s news conference. Consensus was that to not signal a move to higher rates would hurt confidence in the US economic recovery.
Turns out the US economy did that job itself. Economic data from the world’s largest economy has been weak of late, including lower retail sales, reduced home construction, limited industrial production, weaker consumer sentiment, and flagging wage growth.
Meanwhile, an ever-stronger US dollar has made US goods and services more expensive in other countries. A rate raise would add to that pain for American exporters by strengthening the dollar more while also increasing borrowing costs, while international competitors enjoy rate cuts, devalued currencies, and cheap loans.
So, despite all the pressure and expectation, there’s no way Yellen could have suggested raising rates. It would have punched a recovering-but-still-ill economy in the guts.
Instead, she removed the word ‘patient’ from the timeline for a raise while cautioning that the Fed would wait to raise rates until it saw “further improvement in the labour market and is
…
Amongst the blogs and articles making the resource rounds this weekend was a Globe and Mail article titled Big mining companies to take lead on Canadian prospecting.
The idea: with juniors strapped for cash, it is major miners who are planning the most significant exploration programs in Canada this year. Goldcorp’s exploration spending is up 10%. Agnico Eagle is pouring money into the Meliadine gold project in Nunavut; Centerra is pouring even more into the Trans-Canada project in Ontario.
Last year juniors spent $743 million exploring in Canada, while majors spent $1.2 billion. For majors to outspend juniors on exploration is indeed anomalous, as it is usually juniors who explore their way to the discoveries that larger companies then develop.
But this long, deep bear market has created two new realities. First, cash for juniors is very limited and is only really available to advance discoveries towards resource expansion or, better yet, production. That means grassroots exploration has slowed to a crawl.
Second, majors generally prefer to spend their dollars buying advanced assets from juniors rather than exploring themselves. (Majors just aren’t that good at early-stage exploration.) But the list of acquisition-ready projects is actually pretty short.
…
